Last week we published the first installment of the 2019 Barron’s Roundtable—our annual get-together with a group of top Wall Street investors to discuss the outlook for the economy and stocks. After a disappointing 2018 for the markets—in which volatility spiked and stocks sank, with the
Dow Jones Industrial Average
and the
S&P 500
losing 5.6% and 6.2%, respectively—there was plenty to talk about. The conversation covered everything from rising levels of debt, to technological disruption, to recession fears and more.

“The takeaways were both bearish and bullish,” said Lauren R. Rublin, the Barron’s managing editor who moderated the discussion and heads up our Roundtable series. “We examined a lot of worrisome trends— fiscal, monetary, and sociopolitical—but also the investment opportunities that tend to surface in unusually uncertain times.”

She identified five key themes from the roundtable, which we’ve laid out below. Read the full Barron’s Roundtable here. Panelists will discuss some of their worst performing stock picks from last year in next week’s Roundtable issue. Sign up for This Week’s Magazine for a full list of magazine stories delivered to your inbox Saturday morning.

“There are problems with debt broadly,” Gundlach said. “I keep hearing the president say that this is the strongest economy ever, which isn’t true. There was a bump up in second- and third-quarter gross domestic product, but the growth is debt-based.”

William Priest, the CEO and co-CIO of Epoch Investment Partners, put the focus on rising consumer debt. “This mountain of consumer debt, including student debt, is going to impact home buying and auto purchases, particularly within the millennial generation,” Priest said.

DoubleLine's Jeffrey Gundlach discusses the economic implications of the increasing U.S. deficit and national debt with Jack Hough, Barron's associate editor.

The trade war with China

The ongoing tariff dispute between the U.S. and China has begun to affect manufacturing supply, which could lead to earnings disappointments and more problems for stocks. Most Roundtable panelists think President Donald Trump and President Xi Jinping of China will resolve the trade war in the first half of 2019—or at least continue to lower the temperature.

But that doesn’t mean China isn’t still an issue.

“There are real problems with regard to China’s poor protection of intellectual property rights,” said Abby Joseph Cohen, advisory director and senior investment strategist at
Goldman Sachs.
“Forcing multinational companies to do business in China through joint ventures with Chinese entities is another troubling issue. However, the dollar value of the trade deficit, which includes large imports coming from U.S. companies producing in China, isn’t the main problem.”

Disruption in tech

Roundtable panelists spent a lot of time talking about the impact of technology and large tech firms on nearly every aspect of business and society. “We calculate that 31% of S&P 500 companies are under threat of displacement, which has affected earnings multiples,” said Henry Ellenbogen, portfolio manager at New Horizons Fund and CIO for U.S. Equity Growth at T. Rowe Price. “The threat is coming from the big platform companies and companies that enable other companies to move quickly and compete better.”

Technological disruption is deflationary, dragging down wages and prices, and has led to increasing concerns about job stability and economic growth in the U.S. and abroad. His advice: “It will be important to invest in companies that can really pull away from the pack, take advantage of change, and create an environment in which employees feel stable. The ability to excel in these areas will distinguish winning companies over the next 10 years.”

Social unrest and the spread of populism

From France’s Yellow Vests to Britain’s Brexit vote to the rapidly disappearing American middle class, disturbing socioeconomic trends were on the minds of our Roundtable panelists. Priest, of Epoch Investment Partners, summed up issue: “Democracy flowers when living standards are rising alongside it. But when you simultaneously challenge social norms and many of the values that anchor people—a sense of home, job security, and the prospects for growth—and amp it up with social-media networks, you get serious blowback.”

No recession (yet)

The general consensus among Roundtable panelists was that stocks would have a difficult first half of the year, but a better second half—the inverse of 2018’s rough ride for the market. Nor, for all the gloomy discussion, do they expect the U.S. economy to slip into a recession this year. Rupal Bhansali, CIO and International & Global Equities Portfolio manager at Ariel Investments, sounded hopeful. “Changes and challenges don’t have to result in a dystopian world. Look at Switzerland, Germany, Taiwan, or Japan,” she said. All went through difficult demographic changes, and faced the headwind of high labor costs. Yet they overcame those higher costs through higher productivity to become the manufacturing powerhouses of the world. There is always a way out. Companies, like human beings, adapt.”

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